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are worth less than $750,000 because that was the value of the
covenants not to compete respondent determined in the notice of
deficiency. Rule 142(a).
2. Valuation of Covenants Not To Compete
A taxpayer generally may amortize intangible assets over
their useful lives. Sec. 167(a); Citizens & So. Corp. v.
Commissioner, 91 T.C. 463, 479 (1988), affd. without published
opinion 900 F.2d 266 (11th Cir. 1990). To be amortizable, an
intangible asset must have an ascertainable value and a limited
useful life, the duration of which can be ascertained with
reasonable accuracy. Newark Morning Ledger Co. v. United States,
507 U.S. 546, ___, 113 S. Ct. 1670, 1675, 1676 n.9, 1681-1683
(1993). A covenant not to compete is an intangible asset that
has a limited useful life and, therefore, may be amortized over
its useful life. Warsaw Photographic Associates, Inc. v.
Commissioner, 84 T.C. 21, 48 (1985).
The amount a taxpayer allocates to a covenant not to
compete is not always controlling for tax purposes. Lemery v.
Commissioner, 52 T.C. 367, 375 (1969), affd. per curiam 451 F.2d
173 (9th Cir. 1971). We strictly scrutinize an allocation if the
parties do not have adverse tax interests because adverse tax
interests deter allocations which lack economic reality. See
Wilkof v. Commissioner, 636 F.2d 1139 (6th Cir. 1981), affg. per
curiam T.C. Memo. 1978-496; O'Dell & Co. v. Commissioner, 61 T.C.
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